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Investment Viewpoint

Global Asset Allocation Viewpoints

T. Rowe Price


As of 31 January 2019 


  • We continued to add to emerging market equities as relative valuations remain reasonably attractive. A slower pace of U.S. Federal Reserve (Fed) tightening and prospects for a softer U.S. dollar are supportive while a resolution in trade could provide an upside catalyst.
  • Within developed markets outside the U.S., we further reduced our exposure to value stocks in favor of growth as moderating economic growth outlook could challenge cyclically oriented sectors.
  • Within fixed income we added to hedged non-dollar bonds as they offer attractive hedged yields for U.S. dollar-based investors given the short-term interest rate differential favoring the U.S.


As of 31 January 2019 


So, why the sudden reversal of fortunes? To start, the Fed now appears to be on a slower more data-dependent path for rate hikes and consequently the U.S. dollar has taken a pause. Recent headlines out of Beijing have also helped with news of stimulus measures and overtures signaling a willingness to compromise on trade. More importantly, last year’s fears of systemic contagion have all but disappeared as Brazil’s new pro-reform president has taken power and the Turkish economy has clawed its way back from the brink of collapse. While moderating global growth could be a headwind this year, for now, things don’t seem as bad. 


Slowing demand from China is putting pressure on Europe’s manufacturers as the region continues to slow from the 2017 peak. While this has yet to materialize in corporate earnings data, it has started to manifest itself in economic data. Manufacturing and business confidence appears to be worsening as Germany’s manufacturing sector fell into contraction territory in January, a four-year low, signaling a deepening of economic woes in Europe’s largest economy. Meanwhile, activity in France and Italy has also been weak. With Brexit on the horizon, unrest in France, and economic risks on the rise, the ECB may ultimately have to rethink plans to tighten monetary policy later this year.


After a December to remember fomented by fears of recession, global equities are off to their best start since 1987, posting five straight weeks of gains, erasing much of 2018’s losses. The abrupt change in tone from the U.S. Federal Reserve, emphasizing its willingness to be patient with further interest rate increases, combined with speculation for further easing in trade tensions spurred a notable turnaround for equity markets. But while the Fed should have more degrees of freedom with inflation remaining low, the outlook for equities remains uncertain as growth expectations are easing and uncertainty over trade tariffs continues.


As of 31 January 2019 

United States


  • Economic growth is likely to moderate in 2019 as fiscal impulse fades
  • Inflation and labor costs are rising only gradually despite tighter labor markets, keeping recession risks relatively low despite the aging cycle

Equity Fundamentals

  • Valuations reasonable given underlying fundamentals and macro risks
  • Earnings expectations declining, driven by trade and lower oil prices
  • Margins could face headwinds from higher wages

Interest Rates

  • Short-term rates may be close to peaking as Fed shifts toward data dependent policy
  • Longer rates well off recent peaks as growth moderates and inflation remains modest


  • The USD has been stable, despite downward pressure from fundamentals
  • Valuations remain rich, growth and interest rate exceptionalism appear to be peaking

Developed Europe


  • The steady economic weakening across the eurozone continued into Q4, with the full year’s growth coming in at 1.8%, down from 2.3% the year before
  • Italy officially fell into recession, shrinking by 0.2% in the last quarter of 2018

Equity Fundamentals

  • Valuations are modestly attractive relative to the U.S.
  • Earnings results were disappointing in 2018, but forward growth expectations remain positive

Interest Rates

  • The ECB kept its policy rate unchanged in January, and reiterated that this was unlikely to change through the summer of 2019 “or longer if necessary”
  • Slow economic growth and political uncertainty kept European rates range bound for much of the latter part of 2018


  • Political headwinds in Italy and France have eased recently, but weakening economic indicators continue to hold the currency back
  • Expectation of QE unwind, supportive valuations, and a potential Fed pause are likely to be tailwinds for the euro in 2019

United Kingdom


  • The economy softened after a strong summer, slowing even further during the last quarter of 2018
  • With the end of March deadline approaching, rifts remain between the UK and the EU over aspects of the Withdrawal Agreement

Equity Fundamentals

  • Valuations continue to trade at a discount to other developed markets
  • UK equities remain under-owned by investors, despite attractive valuations

Interest Rates

  • Near term direction of rates likely to be driven by Brexit outcome
  • The Bank of England has refused to confirm which way rates would go in a “no deal’ Brexit


Weak economic growth and an uncertain political outlook due to Brexit continue to weigh on the GBP 

Developed Asia & Pacific


  • Trade tensions remain a key issue within the region, with business confidence beginning to fade
  • Economic slowdown in Japan expected to continue this year with declining consumer sentiment a concern given the planned VAT hike
  • Economic data has been weak despite the healthy job market; weaker housing market could weigh on consumer confidence

Equity Fundamentals

  • Valuations within the region remain attractive relative to other developed markets, but earnings are vulnerable to a slowdown in global trade
  • Japanese earnings have been weak, and expectations have been revised lower reflecting trade tensions and upside risk in the yen
  • Australian profit margins under pressure by rising input costs, but valuations remain undemanding

Interest Rates

  • Longer-term yields in the region impacted by falling yields in the rest of the world
  • BoJ continues to re-affirm its accommodative policy with current levels of inflation and wage growth still low
  • Despite slowdown in global trade, RBA is firmly on hold as wage growth remains at acceptable levels


  • Despite limited change in economic growth or monetary policy, the yen has rallied due to risk aversion and growing USD uncertainty
  • Trade and commodity prices will remain important drivers of the Australian dollar

Emerging Markets


  • Economic slowdown in China continues with incoming data likely to remain weak in the short term given the uncertainties around trade and global growth
  • Policy response thus far, including infrastructure spending, tax cuts, and increased credit to small businesses, has yet to take hold

Equity Fundamentals

  • Sentiment has improved since the start of the year on hopes of trade talks and further policy responses to help stabilize growth
  • Earnings growth remains reasonably healthy, but expectations are falling

Interest Rates

  • U.S. Fed policy remains a wildcard
  • Many central banks have shifted toward a tightening bias, but this is partially offset by the PBOC easing


  • Currency volatility has endured, despite stability in bellwethers of risk sentiment (Turkey, Argentina, and Brazil)
  • Valuations are broadly attractive versus history, with a more balanced tone regarding U.S. monetary policy and U.S.—China trade tensions providing additional support


As of 31 January 2019 


As of 31 January 2019 

Source: T. Rowe Price.
Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
These are subject to change without further notice.
Please see “Additional Information” on final page for information about this MSCI information.
Bloomberg Index Services Ltd. Copyright ©2019, Bloomberg Index Services Ltd. Used with permission.

Additional Disclosures:

Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from Factset. Copyright 2019 FactSet. All Rights Reserved.

Source for MSCI data: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein.The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

Copyright ©2019, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of S&P 500 in any form is prohibited except with the prior written permission of S&P Global Market Intelligence (“S&P”). None of S&P, its affiliates or their suppliers guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. In no event shall S&P, its affiliates or any of their suppliers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of S&P information.

Key Risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and therefore involve higher risks.
Foreign investing risk – Investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

Important Information

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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It is not intended for distribution to retail investors in any jurisdiction.

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